Why E-Commerce China Dangdang (DANG) Stock Is Down Today

NEW YORK (TheStreet) -- E-Commerce China Dangdang (DANG) was falling -7.7% to $9.11 Friday following a downgrade from Bank of America/Merrill Lynch and disappointing first earnings.

Bank of America/Merrill Lynch downgraded E-Commerce China Dangdang to "neutral" from "buy," setting a price target of $15 for the company. Analyst Binnie Wong said that while shares havemore than doubled since that beginning of 2013, E-Commerce China Dangdang faces more intense competition. Wong also noted that key metric for the first quarter were disappointing.

For the first quarter E-Commerce China Dangdang reported net income of $800,000. Revenue increased 30% from the year-ago quarter to $279.2 million, though analysts surveyed by Thomson Reuters expected revenue of $281.76 million for the quarter.

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TheStreet Ratings team rates E-COMMERCE CH DANGDANG -ADR as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate E-COMMERCE CH DANGDANG -ADR (DANG) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for E-COMMERCE CH DANGDANG -ADR is rather low; currently it is at 18.25%. Regardless of DANG's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.91% trails the industry average.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet & Catalog Retail industry and the overall market, E-COMMERCE CH DANGDANG -ADR's return on equity significantly trails that of both the industry average and the S&P 500.
  • DANG has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.47 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • This stock has increased by 128.96% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in DANG do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
  • E-COMMERCE CH DANGDANG -ADR reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, E-COMMERCE CH DANGDANG -ADR continued to lose money by earning -$0.30 versus -$0.89 in the prior year. This year, the market expects an improvement in earnings ($0.13 versus -$0.30).
  • You can view the full analysis from the report here: DANG Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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